Too Quick to Market: How Hiring a Competitor’s Employee to Develop a Competiting Product Could Result in an Injunction under TUTSA

In Realpage, Inc. v. Enter. Risk Control, LLC, 4:16-CV-00737, 2017 WL 3313729 (E.D. Tex. Aug. 3, 2017), the Eastern District of Texas explored the definition of “use” under the Texas Uniform Trade Secrets Act (“TUTSA”). In Realpage, the Court granted a temporary injunction to the plaintiff who alleged its former employee was using its trade-secret information. Defendant argued that plaintiff had no evidence that defendant was using the alleged trade-secret information. Although plaintiff had little evidence of actual use, it argued that “use” can be implied from defendant’s quick development of its own software code that was similar to plaintiff’s. The Court agreed. The Court first observed that any exploitation of a trade secret that is likely to result in injury to the trade secret owner or enrichment of the defendant is a “use.” Accordingly, “use” can be found where the exploitation includes “‘relying on the trade secret to assist or accelerate research or development.” According to the Court, an inference of use by the defendant may be justified when the plaintiff can establish a defendant’s knowledge of the trade secret combined with substantial similarities between the parties’ products. Thus, a factfinder may find use by the defendant when “‘the defendant’s product was quickly developed by someone who had recently resigned from the plaintiff-company.’”

Furthermore, although former employees are entitled to use general knowledge gained from their former employee, they are not entitled to use specific information they learned through their former employment. The Court therefore concluded that plaintiff was being irreparably harmed by defendants’ misappropriation because defendants could improve on plaintiff’s trade secrets without first investing the time, expense, and labor necessary to produce a duplicate product.

Realpage offers plaintiffs good precedent to prove use of a trade secret through a combination of defendant’s knowledge of a trade secret and substantial similarities between the parties’ products. Thus, employers should think carefully before hiring an employee from a competitor to develop a competing product.

Heath Coffman is a shareholder at Brackett & Ellis, P.C. in Fort Worth, Texas. His practice includes commercial litigation, intellectual property, collections, professional malpractice defense, fiduciary litigation, and appeals. You can contact him directly at hcoffman@belaw.com.